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Are you an employee or an independent contractor?
The distinction between an employee and independent contractor is not always clear. The distinction is important to both the individual and the hirer. A hirer could be penalized for failure to withhold payroll taxes, CPP and EI in addition to paying Employer Health Tax and Worker’s Compensation payments.
From the worker’s point of view as an independent contractor, they have more latitude in deductions than an employee. However, the contractors will not be entitled to employee benefits, vacation pay, unemployment insurance on termination, they may have to account for GST and they will have to pay for their own CPP and possible Employer Health Tax.
The existence of a sign written contract or an incorporated company does not necessarily mean you are a self-employed independent contractor.
You are likely employed if:
- you work a set number of hours a day
- you account for your time for your company
- you are told what to do at each step
- you use company equipment and supplies
- you work exclusively for a particular hirer
- you are paid an hourly wage as opposed to a percentage of sales
- you are entitled to vacation pay, group benefits, bonuses, etc…
You are likely an independent contractor if:
- you are not committed to a set number of hours
- you work without supervision other than reporting your progress
- you issue invoices and receive cheques (no CPP, EI, benefits)
- you provide services to more than one company
- your remuneration is based on sales or billings
- you pay rent for the office space and equipment
- there is no vacation pay or bonus
Home office expenses
Home office expenses such as rent, mortgage interest, property tax, utilities, telephone, internet, insurance, capital cost allowance (CCA) on equipment and office furniture, repairs and maintenance for the percentage business use of the home is deductible to self employed contractors. Employees cannot deduct mortgage interest, CCA and only commission sales employees can deduct a portion of property tax and insurance.
The office area must be separate, distinct, and used on a regular basis for business and meeting clients.
Other issues
Whether you are an employee or an independent contractor, you can deduct and should keep track of transportation, car expenses, mobile phone charges, business meals and entertainment expenses where it was required by the hirer.
Independent contractors can also income split with their spouse or children by paying them a reasonable salary for work performed.
Offshore Plus does not retain clients on the strength of information on its Web site alone but
only after following our own engagement procedures (e.g. interviews, discussions, retainer
agreements, ...etc.). The information contained on this site is intended to educate
members of the public generally and is not intended to provide solutions to individual
problems. Readers are cautioned not to attempt to solve individual problems on the basis
of information contained herein and are strongly advised to seek competent financial and
legal advice before relying solely on information contained on this site.
Enquiries can be made by e-mail to: SChongCA@on.aibn.com 10/10/01